Queensland Major Projects Pipeline
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Queensland Major Projects Pipeline A JOINT INITIATIVE OF THE QMCA, CSQ AND IAQ
AT A GLANCE
Total Pipeline Major project
Value activity
$39.9b
Funding split
$20.2b
$39.9b Public Projects
Total $19.7b
Private Projects
Major Projects Pipeline – Breakdown
$39.9 billion total (over 5 years)
Credibly
Unlikely Prospective proposed
33 43 22
projects valued at projects valued at projects valued at
$6.9b $5.1b $4.1b
Unfunded $16.1 billion
$7.9b per year
Scale of $21m per day
Recurring
Expenditure
$2.1m Major
$152m per
Projects
per week
working
hour
Jobs
The funded pipeline will support
$8.2b 12,700 workers
North Queensland each year on average
$13.6b
Fully-funding the pipeline
South East Queensland will support an extra
$3.8b 4,700 workers
Surat Basin each year on average
14.3b
Various
Under Under
Announced procurement construction
22 12 58
projects valued at projects valued at projects valued at
$5.3b $4.1b $14.4b
Funded $23.8 billion
CONTENTS Foreword1 Executive Summary 2 Long-term Challenges and Recommendations 5 Economic Outlook 10 Long-term Queensland Major Projects Pipeline 24 Workforce and Employment Outlook 38 Implications, Challenges and Risks 46 Conclusion and Recommendations 60 2018 Major Projects List 64 This report has been produced by the QMCA, CSQ and IAQ (“the Industry Bodies”) with the assistance of BIS Oxford Economics. The report is based on information available as at end March 2018 from public and private sources including Project Sponsors and the Industry Bodies, Project Sponsors and BIS Oxford Economics provide no warranty as to its accuracy, reliability or completeness. To the extent permitted by law, neither the Industry Bodies, Project Sponsors or BIS Oxford Economics or any of their related entities accept liability to any person for loss or damage arising from the use of the information contained in this report.
FOREWORD
We are proud to introduce
the 2018 Queensland
Major Projects Pipeline
Report to you – an initiative
of the Queensland Major
Contractors Association
(QMCA), Construction Skills
Queensland (CSQ) and the
Infrastructure Association
of Queensland (IAQ).
Nowhere else in Australia do industry For governments, the consolidated Queensland is a decentralised and
peak bodies consult so closely with picture of state wide major project vast Australian state which requires
governments, government-owned activity in the next four years can help continued investment in infrastructure
corporations and private sector guide policy formation, unlock the by both public and private sectors
proponents to accurately chart potential for private sector partnerships to meet demands of a growing
the status of all major projects in and leverage capital works investment. population and increase our global
their home state. The fruit of this competitiveness. Experience from
The greatest threats to a sustainable
approach is an authoritative report successful countries and jurisdictions
pipeline of projects are the
which describes the scale, timing around the world show that when
identification of investable projects,
and location of all major engineering public and private sectors face
availability of funds and timely
projects being considered or infrastructure challenges together,
investment decisions. This year’s
developed in Queensland. the public and economy are the big
report highlights much lower levels
winners. Perhaps the real worth of our
Sincere thanks to our partner of private sector investment than
report is that it sends a strong signal
BIS-Oxford Economics for their expert previous years, with $9.4 billion of
to potential infrastructure investors
guidance, compilation of the project projects classified as only prospective
that a highly motivated engineering
listings and the detailed independent or considered unlikely to receive
sector exists, with contractors and
analysis that underpins the report. funding. Until positive business cases
service providers eminently capable
This year, we have increased our and investment decisions are made,
of preparing for and delivering world
investment in the report format to mining and industrial projects such
class major projects.
enhance reading experience and as those in the undeveloped Galilee
improve access to key report data Basin remain at risk. The value of As industry peak bodies we are
through a dedicated website. The public sector projects which have committed to promoting Queensland
new design and look of this report is positive funding announcements as a world leading destination for
a statement of confidence in the future or are currently under procurement economic development and new
of our partnership and the continued outstrips the private sector. The report infrastructure investment. We look
relevance of our report to industry for also forecasts a significant 72% forward to working with all our
years to come. reduction in private sector mining and stakeholders in 2018 to grow the
heavy industry projects in the next pipeline of major projects in our
For infrastructure designers,
five years compared to the last. The great State.
contractors and other project
ability of governments to identify and
participants, this report is an
deliver on their planned infrastructure
indispensable business planning
has therefore assumed even greater
tool, capable of guiding well-informed
importance to the continued short-
decisions to participate in chosen
term sustainability of the major projects
market sectors and geographic
contracting sector.
regions.
Peter Anusas Brett Schimming Steve Abson
President Chief Executive Officer Chief Executive Officer
Queensland Major Construction Skills Infrastructure Association
Contractors Association Queensland of Queensland
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 1
EXECUTIVE
SUMMARY
Welcome to the second Queensland Major Projects Pipeline Report (the
Report) developed by the Queensland Major Contractors Association (QMCA),
Construction Skills Queensland (CSQ) and the Infrastructure Association of
Queensland (IAQ). During this period, Queensland experienced a substantial
boom and bust cycle in construction activity and major project work.
The key finding of this Report is Industry can feel more confident
that major project work has risen about investing in new equipment,
Given rising major
by 58% in 2017/2018 to $6.9 billion productivity enhancing initiatives and
after two successive years of low skills development if they are given
project activity in
activity. Subject to level of funding reasonable lead times to prepare in other states and the
commitments for 22 credibly proposed the form of a clear, long-term major need to meet growing
projects, activity in 2018/2019 is projects pipeline – and if governments demand in Queensland,
forecast to be retained at a similar and procuring agencies implement governments need to
level. However, recovery in activity may supportive policies.
consider how they can
be short-lived and decline again in
This year’s Report provides a raise additional funding
2019/2020 due to an identified lack
comprehensive list of major project for infrastructure
of viable replacement projects.
work, together with analysis on the
projects, accelerate
Maintaining recent momentum is corresponding level of construction
existing projects or
therefore the core challenge facing activity this entails and the subsequent
the state, requiring a range of demand for skilled construction labour. stimulate private
initiatives to improve levels of funding This analysis is based on both the investment
for infrastructure, ensure capability completion of existing projects and
and capacity to manage a growing the likelihood of potential projects
pipeline and, fundamentally, provide proceeding. A complete list of major
positive conditions and frameworks projects considered for this analysis,
that support the economy’s growth and the explicit assumptions for each
engines: public and private investment. project regarding work done and
Given rising major project activity construction workforces employed
in other states, and the need to each year, are provided in the
provide infrastructure to meet Appendix at the end of this report.
growing demand in Queensland,
As well as presenting the pipeline, the
governments need to consider how
Report discusses the key economic
they can raise additional funding for
settings where major project activity
infrastructure projects, accelerate
is taking place, for Queensland and
existing projects or stimulate private
Australia, together with global trends.
investment. Maintaining a stable
and mildly growing pipeline of major
project work from here will not only
support economic growth and the
sustainability of the major projects
industry, but importantly will likely cost
the government much less than if the
projects were undertaken later in the
cycle or in a more heated environment.
2 2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
KEY FINDINGS
—— The total value of 190 projects —— Northern Queensland has the
identified in the 2018 pipeline is strongest growth prospects in the
$39.9 billion (Engineering Value), pipeline for all regions (including funded
compared to 166 projects valued and unfunded work) compared to
at $39.1 billion in the 2017 pipeline. the past five years, but South East
However, the value of funded work in Queensland still commands the largest
the pipeline is only $23.8 billion, with share of major projects activity
98 public and private projects still (Figure 3).
awaiting funding commitments.
—— New public and private investment —— Queensland still lags New South
– including projects in the Major Wales and Victoria in terms of
Projects Pipeline – is having a funding and delivering infrastructure.
broader, stimulatory effect on As New South Wales and Victoria
the Queensland economy. further ramp up infrastructure
investment over the remainder of this
decade, challenges may re-emerge
—— Public and private sector
in procuring construction services
investment – focused in roads, rail,
in Queensland. This is a challenge
telecoms and electricity – is driving the
that will be compounded not only by
current recovery in major project work.
digital disruption but by Queensland’s
and Australia’s changing
—— While major project activity has demographics – and in particular the
risen from the 2016-2017 trough – ageing of the workforce, as identified
the main challenge will be keeping in the workforce implications section
activity at sustainable levels into the of the Report.
future given the weak outlook for
currently funded work (Figure 1).
—— The value of public sector projects
that have funds committed or are
currently under procurement now
outstrip the private sector by a factor
of 6 to 1. The ability of governments
to identify and deliver on their
planned infrastructure has therefore
17%
of the overall
assumed even greater importance
project pipeline
to the continued short-term
sustainability of the major projects ($6.9B) is unlikely
contracting sector. to proceed
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 3
Figure 1
Major Projects Work Done: All Segments
$ Billions
20 60%
18
50%
16
14
40%
12
10 30%
8
20%
6
4
10%
2 The total value
0 0% of 190 projects
identified in the
2020/21
2021/22
2010/11
2016/17
2017/18
2018/19
2019/20
2011/12
2012/13
2013/14
2014/15
2015/16
2018 pipeline is
Funded Total Credibly Proposed Total Prospective
Total Unlikely % of Public Funding (RHS)
$39.9b
Figure 2 – Outlook by Sector
Total Pipeline of Work Over the Next Five Years
Defence N/A
Water & Sewerage 42%
Non-Water Utilities 129%
Rail & Habours 85%
Roads & Bridges 77%
Mining & heavy Industry -72%
0 2,000 4,000 6,000 8,000 10,000 12,000
Funded Unfunded % Compared to Previous Five Years (% Change)
Figure 3
Outlook by Region Over the Next Five Years
Gladstone -96%
Bowen -12%
Galilee N/A
Northern Queensland 361%
Surat -52%
South East Queensland 167%
0 3,000 6,000 9,000 12,000 15,000
Funded Not Funded % Compared to Previous Five Years (% Change)
4 2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Figure 4
Major Project Work Done and Queensland State Economic Performance
20,000 10
18,000
8
16,000
6
14,000
12,000
4
10,000
2
8,000
6,000 0
4,000
-2
2,000
0 -4
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Funded Not Funded SFD A%ch GSP A%ch
LONG-TERM CHALLENGES
AND RECOMMENDATIONS
While investment in major It’s unsurprising that there is a Apart from the short-term impacts,
engineering projects has improved in correlation between major project investment in critical infrastructure
Queensland, the general outlook for work done and Queensland’s major projects can also boost long-
growth in investment, employment economic performance – with the run economic growth by improving
and the broader economy is not latter represented by growth in productivity (e.g. reducing transport
exactly spectacular. Rather than SFD and GSP. Major project work times and costs). This boosts the
the high growth rates experienced has strong multiplier impacts on economy’s “speed limit” before it
during much of the 1990s and the economy, particularly when it runs back into capacity constraints.
2000s, economic growth (as uses local labour and resources.
Overall, sustaining growth in the
captured by Gross State Product Essentially, additional major project
Queensland economy requires
or GSP) is expected to average work requires other industries to
putting into place plans and policies
around 2.8% per annum through boost their outputs also – both
that will encourage and sustain both
the next five years, with Queensland directly to service the initial increase
public and private investment in the
State Final Demand (SFD) growth in construction output, and then
state over the long-term. This means
averaging a slightly better 3.3% per indirectly to satisfy the subsequent
addressing funding issues highlighted
annum. Historically, Queensland expansion in the other industries.
in the 2017 Major Projects Pipeline
has significantly outperformed The overall gross multiplier (or total
Report, continuing to develop
the Australian economy, however direct requirement) for heavy and civil
new productive infrastructure
the next five years only sees very engineering construction is over two,
projects, and providing a supportive
marginal outperformance overall. suggesting that every dollar increase
environment for privately funded
in major project work “requires” an
projects to proceed.
overall boost of over two dollars
across the broader economy.
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 5Port Drive upgrade
There has been a 64% reduction Meeting the infrastructure challenge
in credibly proposed projects from requires all levels of government
$11.5 billion identified in our 2017 to develop policies that align their
Report to just $4.1billion in this year’s infrastructure priorities and streamline
Report, which indicates challenges approval of their project funding
to sustaining major project work at co-contributions. This is particularly Encourage the
2017/2018 levels over the next two important in Queensland as the split
adoption of new
years. In the short-term, funding in policy between Commonwealth
for $4.1 billion of credibly proposed and State on long-term asset leasing technologies
projects is required and detailed and capital recycling means using this that increase the
business cases are needed to further option to raise infrastructure funding productivity of the
support $5 billion of prospective is not possible in the medium term,
construction industry
project investment decisions. unlike the high-growth states of New
South Wales and Victoria. Policies are
Over half of the private sector projects
also required that encourage private
identified in the Pipeline are either
sector proponents to invest in their
Prospective or unlikely to receive
existing infrastructure while attracting
funding approval in the medium
new investment to Queensland.
term. This is leading to a distinct lack
of replacement projects for those
currently under construction and
is skewing the investable project
ratio towards public sector projects.
The challenge is to understand the
barriers that are preventing greater
private investment in existing or
new private infrastructure – be that
regulation, approvals, risk on financial
return, perception of sovereign risk or
confidence in the long-term outlook for
the region.
6 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookThere are initiatives that governments can undertake to boost their funding capability and deliver
the infrastructure Queensland requires, including:
——Continue to mature the development of ——Improve identification of specific markets,
independently prepared business cases and networks or regions where privately-led
ensure that public infrastructure projects are infrastructure proposals can provide critical
selected through transparent cost benefit infrastructure. For different reasons, the
analysis (CBA). To ensure continued regional State-sponsored Market-led Proposal
investment, regional projects in existing areas initiative and the Commonwealth-sponsored
or networks with low populations or relatively Northern Australia Infrastructure Facility
low initial demand may require more careful initiative have yet to stimulate substantial
consideration of business case benefit-cost- increased economic investment and major
ratios of less than 1, taking a longer term and project activity. Rather than await proposals,
wider view of the project benefits. the formulation of specific prospectus by
government that invite interest in developing
desirable infrastructure may assist both
international and domestic private investors
to actively participate.
——Provide increased certainty of long-term ——Research, identify and work to remove
Commonwealth funding streams through barriers to private sector infrastructure
expanding the number of City Deals. The investment. The current value of funded
Townsville City Deal struck in December 2016 private sector projects announced or being
was the first in Australia and an important start. procured is less than 20% than those
A South East Queensland (SEQ) Regional City funded by the public sector. This indicates a
Deal has the potential to be the foremost City significant skew from the historical average
Deal in the nation involving eleven separate of 50-50 public-private investment in major
Councils. This second generation City Deal can engineering projects.
provide a structured, coordinated plan for the
long-term funding of SEQ infrastructure by all
——Do not rule out infrastructure debt for
tiers of government.
capital investment. In the right circumstance
where productive economic infrastructure is
identified through an independent business
case, increased debt funding can have a
powerful impact on economic growth.
——Provide increased certainty of Commonwealth ——Maintain strong oversight and monitoring of
and State contributions to funding of transport government capital works expenditure and
projects on the National Land Transport breaking the underspend pattern on planned
Network. Since last year’s Report, there have infrastructure investment. As highlighted in
been further public disagreements by the the previous Report, there continues to be
respective governments on major contributions sharp differences in planned public investment
towards funding major projects on the M1 (measured as ‘purchases of non-financial
motorway and Cross River Rail. This decreases assets’ in various Budgets) and actual spending
confidence and leads to uncertainty of the outcomes. The 2016/17 State Budget, for
transport projects in the Pipeline. example, planned for $8.3 billion in such
investment, which the recent 2017 Mid-Year
Fiscal and Economic Review (MYFER) confirmed
to be $7.3 billion – around a $1 billion shortfall.
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 7Logan Enhancement Project
The existence of a highly skilled and efficient engineering and contracting market in Queensland can help
to stretch tax-payer funds and attract private sector proponents looking to develop low-cost infrastructure
and exploit global markets. For these reasons governments, private sector proponents and major project
participants could collectively explore how to drive out waste, improve productivity and improve project risk
allocation through the following:
——Utilise accurate capital planning, state ——Develop and maintain a plan for construction
infrastructure plans and long-term project materials so that the demand and supply
pipelines such as in this Report to give industry balance for scarce products can be quantified,
the best possible chance of participating mapped and emerging gaps identified early in
in major projects. the process. Similarly, attention needs to be
focused on the development and maintenance
of a construction transport and logistics plan to
——Increase collaboration between infrastructure
avoid bottlenecks, delays and rising costs for
developers and the construction industry,
construction materials as a result of congested
through the use of contract forms that seek
road transport networks.
to maximise value through reduction in waste,
reward innovation, lead to genuine improvements
in productivity and best allocate risk.
——Increase efficiency in procurement of ——Encourage the adoption of new technologies
infrastructure projects through use of more that increase the productivity of the construction
selective and collaborative tender processes that industry. These can include offsite modular
recognise the significant cost involved in bidding construction, automation, digitisation, use of
for large infrastructure projects (costs that Building Information Modelling (BIM) to enhance
ultimately need to be recovered either through supply chain collaboration and investigate better
direct reimbursement or mark-up). forms of knowledge transfer.
——Strengthen the focus on workforce planning ——Encourage the development of formal dispute
and skills development initiatives so that avoidance strategies that include the use of
demand for key onsite skills can meet the effective collaboration to develop construction
infrastructure activity. price certainty and allocate project risk using
best practice.
8 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookQueensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 9
ECONOMIC
OUTLOOK
Population
growth is among
the highest of
the developed
economies,
which has
helped underpin
household
consumption
and demand for
dwelling and
infrastructure
construction
Differences in the timing and
magnitude of investment cycles by
region are creating large differences
in economic performance (and
construction activity) by state
Further declines in bulk commodity
prices are anticipated, before a
longer term recovery, affecting
Queensland royalty revenues
10 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookPublic Sector Pipeline
$20.2 billion total (over 5 years)
Credibly Under Under
Unlikely Prospective proposed Announced procurement construction
11 18 13 17 8 24
projects valued at projects valued at projects valued at projects valued at projects valued at projects valued at
$0.5b $2.0b $2.2b $4.7b $3.4b $7.4b
Unfunded $4.7 billion Funded $15.5 billion
Private Pipeline
$19.7 billion total (over 5 years)
Credibly Under Under
Unlikely Prospective proposed Announced procurement construction
21 26 9 5 4 34
projects valued at projects valued at projects valued at projects valued at projects valued at projects valued at
$6.4b $3b $1.9b $0.7b $0.7b $6.9b
Unfunded $11.4 billion Funded $8.3 billion
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 11ECONOMIC OUTLOOK
The Queensland economy has traditionally been one of the stronger state
performers in Australia but has been suffering the effects of a prolonged
downturn in public and private investment.
While one of Australia’s key ‘resources’ states – and one of the largest exporters of coal (and now gas) – the State economy
remains highly diversified and increasingly linked into global trade networks through tourism, agriculture and education
industries. Mining investment is at a trough and rising non-mining investment and service credits will help offset expected
falls in private dwelling investment.
Key points:
——Global economic growth is predicted to strengthen in ——Queensland State Final Demand (SFD) rose in 2016/17
2018, before moderating in the longer run. World Gross after two years of decline. Over the past year, growth
Domestic Product (GDP) growth has risen from 3.2% in in SFD has been underpinned by modest growth and
calendar 2016 to 3.7% in 2017 and is forecast to rise to contributions from household spending, business
3.9% in 2018. From 2019, the world economy will begin equipment purchases, government recurrent expenditure
to show gradually slower growth, linked to long-term and dwelling investment, although growth in dwelling
fundamentals, with growth forecast to average 3.3% investment has slowed sharply over recent quarters after
over the five years to 2027. strong growth over the previous four years.
——Global prices for a number of commodities are expected ——Employment growth gained momentum, pushing the
to retreat over 2018, before slowly recovering over unemployment rate down to 5.2%. Annual employment
subsequent years as the global oversupply in a number growth is now over 4%, on-trend with the bumper jobs
of commodities dissipates. Bulk commodity (coking coal growth seen at the national level over the same period.
and iron ore) prices rebounded in 2016/17 but have The employment participation rate has also gradually
come down from recent peaks – though they are still improved, reaching over 65.5% for the first time since
well above the trough in early 2016. Prices are set to February 2016, significantly improving the health of the
consolidate in the near term for most other commodities labour market.
but rise in the medium to longer term supporting
Australian producers.
——Australia’s annual GDP growth is forecast to remain ——The worst of the mining investment slump has now
around 2.5% for the next three years. GDP will be past and Queensland’s economy is forecast to slowly
boosted by net exports, with solid growth in export pick up over the next two to three years despite a
volumes forecast. Underpinning this will be healthy global downturn in residential construction. Growth in SFD,
growth (which will drive demand for services exports), GSP and employment are all forecast to be similar to
new Liquefied Natural Gas (LNG) capacity, and moderate the national average over the next few years, although
growth in capacity in other key commodities. Rural and state economic growth will remain well below historical
manufacturing exports are also expected to contribute, averages of over 4% per annum (for SFD and GSP).
with both sectors taking advantage of Australia’s
comparative advantage in high quality, high
value-added output.
——Queensland’s economic growth (as measured by Gross
State Product or GSP) slowed marginally in 2016/17
to 1.8% following 2.6% growth in 2015/16. This mild
deceleration was driven by a slowdown in housing
investment combined with the continued fall in non-
dwelling mining construction. Yet these declines were
offset by growth in exports as LNG production ramped
up in conjunction with rising service credits (tourism).
12 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookFigure 5
Economic Growth by Region and Country
Real GDP/GNP#
Year OECD US Japan Euro China India Other World
Ended (1)(4)
area East GDP(4)
December Asia(3)(4)
Despite the rising risks, 2008 0.2 -0.3 -1.1 0.4 9.6 6.2 7.7 3.0
the global economy 2009 -3.5 -2.8 -5.4 -4.3 9.5 5.1 4.4 -0.5
is still positive for 2010 3.0 2.5 4.2 2.1 10.6 10.9 4.8 5.3
Queensland
2011 2.0 1.6 -0.1 1.7 9.5 6.9 4.3 4.1
2012 1.4 2.2 1.5 -0.4 7.8 5.5 4.2 3.3
While there is no shortage of 2013 1.5 1.7 2.0 0.3 7.8 6.2 3.8 3.4
commentary surrounding the risks 2014 2.2 2.6 0.3 1.8 7.3 7.1 4.0 3.5
inherent in global economic growth
2015 2.5 2.9 1.4 2.2 6.9 7.5 4.5 3.2
– ranging from the sustainability of
Chinese growth and resilience of its 2016 1.8 1.5 0.9 1.9 6.7 7.9 4.3 3.2
financial system to the effect and 2017 2.5 2.3 1.8 2.4 6.9 6.2 4.2 3.7
impact of new trade sanctions – the Forecast
fact remains that economic conditions
2018 2.5 2.8 1.7 2.2 6.4 7.5 4.1 3.9
on the ground have improved in the
US and across Queensland’s major 2019 2.0 2.0 0.9 1.8 6.0 7.0 4.0 3.6
trading partners. 2020 1.6 1.5 0.0 1.6 5.7 6.9 4.0 3.5
World GDP growth was robust in 2021 1.6 1.5 0.9 1.5 5.4 6.6 3.9 3.4
calendar 2016 (reaching 3.2%) and 2022 1.6 1.5 0.9 1.4 5.2 6.4 3.8 3.3
growth accelerated to 3.7% through
Average Growth Rates
calendar 2017. Growth is being
supported by rising manufacturing 2003–2007 2.8 2.9 1.7 2.5 11.7 8.6 4.5 4.9
activity and global trade flows. 2008–2012 0.6 0.7 -0.2 -0.1 9.4 6.9 5.1 3.0
Developed economies are leading the
2013–2017 2.1 2.2 1.3 1.7 7.1 7.0 4.2 3.4
way for the first time in a decade. From
2019 onwards, the world economy is Forecast
expected to slow somewhat, linking 2018–2022 1.9 1.9 0.9 1.7 5.7 6.9 4.0 3.5
once again to long-term fundamentals 2023–2027 1.5 1.6 0.5 1.2 4.7 6.2 3.6 3.3
(falling population growth and
structurally slower productive gains), (1) Organisation for Economic Co-operation and Development: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
but it is still expected to average 3.5% Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom,
per annum over the five years to 2022. United States.
(2) Euro area: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia,
Australia’s trading partner growth Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain.
(weighted by export proportions) will (3) Other East Asia: Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam.
grow at a faster rate of 3.8% over (4) 2017 is an estimate.
(5) Trading partner countries include: China, Japan, Hong Kong, United States, New Zealand, India,
the next five years, due to the high
Europe and Other East Asia.
weights of China, East Asia and India # Annual Per Cent Change.
in Australia’s export mix. Although
these economies will experience
slower growth going forward, they
are still expected to outpace the
global average. In the US, business
investment is forecast to accelerate,
driven by improving domestic demand
and export gains from a more
competitive US dollar and a stronger
global climate, rebounding energy
sector activity and corporate tax cuts.
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 13Figure 6 – Commodity Prices ($US)
Quarterly Average Prices (Log Scale)
320 Forecast
160
80
40
20
10
Jun 90 Jun 92 Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12 Jun 14 Jun 16 Jun 18 Jun 20
Coking Coal (US$/t) Thermal Coal 9US$/t) Crude Oil (US$/t) Iron Ore (US$/t)
Source: BIS Oxford Economics, BREE data
The combination of solid increases in Further declines in
employment and improved (although bulk commodity prices Queensland – and
still moderate) wage growth should Australia more broadly
are anticipated, before
drive higher household incomes, – continues to be well
a longer term recovery,
consumer spending and residential
affecting Queensland positioned to supply
investment.
royalty revenues (and commodities
Meanwhile, the Eurozone is expanding
impacting on the
at the fastest pace in a decade. A combination of geographical
Firming domestic demand is driving Australian dollar)
proximity to Asian demand centres,
the economy, with investment favourable policies, supporting
recovering and weaker inflation, strong After recording strong gains from infrastructure, being at the lower
consumer confidence and employment supply side concerns, coking coal end of the cost curve for several
supporting household spending. The prices are forecast to fall over the next commodities, and high quality /
overall Eurozone unemployment rate two years driven by both increased low impurity content of mineral
is at a nine-year low. coking coal production in China and endowments will all support future
Japan is expected to benefit from a return to average (normal) production exports from Australia. This will help
ongoing monetary and fiscal stimulus, levels in Australia. A sustained recovery counter the negative effects of several
including a delay in a sales tax hike is forecast from early next decade mines reaching their end-of-life and the
in response to ongoing weakness in as global growth builds momentum possibility of discovering lower quality
private demand growth. Meanwhile, against constrained supply, and as ore body during exploration. However,
China, while gradually slowing, is the path of development in emerging lower prices for coal, if realised,
still the world’s largest economy economies becomes more steel present a risk to state government
and will continue to make significant intensive. For thermal coal, prices are royalties. To some extent however, the
contributions to global growth. India still elevated, although a correction fall in commodity prices (combined
and ASEAN-5 (Indonesia, Philippines, is expected over 2018 and 2019 as with rising interest rates in the US) is
Malaysia, Thailand and Vietnam) GDP ‘one-off’ recent price drivers dissipate also likely to keep the Australian dollar
growth is expected to pick up pace and markets come back to balance. A below recent highs, which will help
over the next two years while Russia modest price recovery is forecast from offset lower US-dollar commodity
and Brazil – currently in recession – are next decade as demand is expected to prices – and also provide
expected to recover from 2017 adding outweigh supply. a boost to Queensland’s
to world growth. trade exposed industries.
14 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookFigure 7 – Commodity Prices ($US)
Quarterly Average Prices (Log Scale)
Forecast
32,000
16,000
8,000
4,000
2,000
1,000
0 Jun 90 Jun 92 Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12 Jun 14 Jun 16 Jun 18 Jun 20
Nickel Lead (x10) Gold (x10) (US$/oz) Copper Zinc Aluminium
Source: BIS Oxford Economics, BREE data
Offsetting investment The main factor dragging down growth Overall, however, the Australian
cycles keep the Australian has been a major decline in mining economy has been unable to sustain
investment, which has coincided (and economic growth above 3% since the
economy subdued
contributed to) weakness in non- peaking of the resources investment
mining business investment. cycle in 2012/13. Much of this weaker
The Australian economy has strong
fundamentals, now enjoying 27 years The shift in the Australian economy economic performance is due to very
of uninterrupted growth since the back to broad-based growth following weak growth in domestic demand
1990/91 recession. Population growth the mining boom continues to during the period, which has been
is among the highest of the developed progress slowly. Growth is still below negatively impacted by the ongoing
economies, which has helped trend–GDP growth has averaged decline in resources investment.
underpin household consumption and around 2.5% annually over the last While partially cushioned by a boom in
demand for dwelling and infrastructure five years, with FY2017 coming residential investment since 2013/14
construction. Government debt is in below that, at 2.1%. There are and, more recently, by a recovery
comparatively low by global standards, some positive signs. Net exports are in public infrastructure investment,
with the Federal Government and the
contributing positively to demand, with economic growth has also been
larger state economies of New South
the global upswing and a competitive hampered by record low growth in
Wales and Victoria maintaining AAA
Australian dollar (albeit recently flirting wage incomes, with households
credit ratings. Overall economic risks
with US$0.80) helping to drive export spending more of what they earn
are low and the Australian economy is
volumes growth. But despite stronger and reducing savings to maintain just
well situated in the fast growing Asia
profitability, non-mining business moderate household expenditure
Pacific region.
investment remains patchy, and with growth. Weak wage growth has also
Nevertheless, growth in GDP and spare capacity still to absorb in the driven weaker than budgeted tax
particularly domestic demand has labour market, household income revenues for governments, lengthening
been lower over the past five years and consumer spending growth is the time horizon required to return to
than the previous two decades. forecast to remain below trend this sustainable budget surpluses, and
year and next. limiting the firepower of governments
to counter weak private investment
with higher public investment without
further increasing public debt.
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 15Unlike many other resources- Low interest rates in this environment There remain challenges ahead for
exporting economies, Australia did not have had relatively little impact. While the Australian economy that are likely
experience a recession in the wake of there have been plenty of funds to keep business confidence and
the resources investment bust. Strong available, this just hasn’t been the investment on a weak plane over
growth in mining production and business environment for strong the next one to two years. Wage
exports from world class, competitive private investment. growth, except for skilled professions
deposits, and supercharged by and trades in some sectors and
The next growth phase in the
a much lower dollar – which also states, is likely to remain relatively
Australian economy will be driven
stimulated other exports of goods and weak, affecting retail trade and
by non-mining business investment.
services, such as tourism, education household expenditures. Politics is
When it does recover, it will be to
services, agriculture, manufacturing highly adversarial, with major political
service growing demand, driven
and business services – has helped parties unable to forge a workable
by a growth logic (evidenced by
offset some of the pain from weaker consensus on many important policy
rising profits) and augmented by a
demand growth. Economic growth areas surrounding taxation, energy
technology catch-up. In turn, this
(which includes net exports) has security, and the environment. But,
will have a strong multiplier through
generally been higher than growth more importantly, investment cycles
business services into the rest of the
in domestic demand. across Australia are likely to remain
economy. While non-mining business
highly unsynchronised over the next
The challenge for Australia is that profits have increased, it is still too
two years – keeping overall economic
mining exports, particularly, are highly early to say that businesses are
growth constrained to around 2.5%
capital – rather than labour – intensive. confident in the path of future demand
per annum on average over 2017/18
Stronger, sustainable growth in and profits, and are willing to make the
and 2018/19.
employment requires stronger growth psychological shift from caution to a
in local expenditures; and in domestic ‘go for growth’ investment mentality.
demand. In turn, this requires the
Part of the reason for this is that
return of growth in non-mining
nationally, by region and industry,
business investment, which
growth and profitability is highly
has remained stalled since the GFC.
fragmented. Very strong economic
The problem for non-mining industry growth has returned to New South
sectors has generally been weak Wales and Victoria, after spending
growth in demand, weak profits and much of the mining boom years
excess capacity. In that environment, suppressed. But growth in demand is
it is foolhardy for businesses to invest still very weak in many other regions.
ahead of requirements, straining cash Some states such as Western Australia
flows and locking in additional costs and Queensland saw outright declines
before they had the revenue to support in State Final Demand in recent years.
them. Most businesses are still in
cost-cutting mode, preserving cash
and deferring investment until
demand recovers.
Mining construction
will decline around
78%
from the 2013/14 peak to the trough
16 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookFigure 8 These unsynchronised investment
Major Project Work Done by Segment cycles include:
Per cent Forecast ——Residential investment, a
8
key driver of growth over the
three years to 2015/16, which
6 is expected to peak and then
decline over the next three years,
4
with particularly large declines
expected in the volatile high
density apartment market.
2
——Mining investment nationally,
0 which is in the final stages of
decline as the LNG investment
boom finally runs its course
-2
in Western Australia and the
Northern Territory (having already
-4 wound down in Queensland).
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Overall, mining construction
Year Ended June
Real GNE Real GDP External Contribution will decline around 78% from
the 2013/14 peak to the trough,
although mining equipment
Contribution to Domestic Demand – Percent
purchases and exploration have
started to recover across most
Per cent Forecast
4 commodities (indicating the initial
stages of the next upturn).
3 ——Public investment, which has
finally started to recover after five
2 years of decline, surging 16% in
2016/17 alone. Growth in public
1 investment is being supported
by new transport infrastructure
0 but will be offset in part after
2018/19 by sharply falling
investment in Australia’s largest
-1
public infrastructure project – the
NBN. Even considering a strong
-2
phase of growth in transport
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Year Ended June infrastructure, growth in total
Private Consumption Government Expenditure public investment is expected to
New Business Investment Dwelling Investment
be either flat or falling (and hence
be a drag on Australia’s economic
growth) by the end of the decade.
——Non-mining business
investment, which is currently
showing only modest growth but
is expected to strengthen from
last decade as higher profitability,
demand and capacity utilisation
(in turn supported by a slightly
weaker Australian dollar) drive a
change in business confidence
and investment.
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 17Domestic demand is predicted to Queensland’s Yet in one important sense, the
improve late this decade as the economic challenge Queensland economy has been
expected declines in mining and The end of the mining boom was partially sheltered from the severity
residential investment bottom out always going to be a trying time for of the downturn in mining investment.
and start showing signs of recovery. the Queensland economy. Economic Significant components of mining
Capacity constraints and expected growth weakened markedly from and mining-related investment
improvements in business confidence 2011/12 driven by falling mining and and equipment were sourced from
are predicted to drive an acceleration public investment. Growth in GSP overseas, and were therefore classed
in non-mining business investment. averaged 4.4% per annum over the as imports, detracting from GSP.
But until that time, economic growth 10 years to 2009/10 then fell to As mining investment retreated, so
and inflation is expected to remain average 2.5% per annum over the did these imports. So, although the
relatively subdued, with the Reserve five years to 2014/15. local economy did not receive all the
Bank unlikely to be in a strong position benefits of the resources construction
to raise interest rates until 2019/20. Meanwhile, growth in SFD – a measure boom during the upswing, it
of domestic demand or spending in conversely did not suffer the whole
Differences in the timing and the local economy which is highly negative magnitude of the downturn.
magnitude of investment cycles by correlated with employment – slowed
region are creating large differences to just 0.9% in 2013/14 (compared Mining now accounts for a falling
in economic performance (and to growth rates of between 5% to share of total engineering construction.
construction activity) by state. Strong 9% during the boom years), and then At the 2013/14 peak, mining and
pipelines of infrastructure projects, fell 3.6% in 2014/15 and a further heavy industry construction, pipelines
relative undersupply in housing, 1.2% in 2015/16. Employment construction and railways construction
higher population growth and growth weakened in unison, with accounted for around 90%
private sector confidence to invest the unemployment rate averaging (or $35.9 billion of the total
is driving a construction upswing in 5.9% over the five years to 2014/15 $39.2 billion) of privately funded
New South Wales and Victoria, which (compared to 4.5% over the five years engineering construction. Since
in turn is spilling over into broader to 2009/10). This weakness continued then, resources-related engineering
industry growth. into 2015/16, and the first half of construction has simply plummeted.
2016/17, with monthly employment The void left by retreating mining-
By contrast, total investment and
falling consecutively on more than related engineering construction is
construction activity remains relatively
three occasions over the period. More being partially offset by a recovery in
flat (or falling) in the former resources
recently, however, the labour market public investment. After little growth in
boom states of Queensland and
has shown some strength with the the previous three years, Government
Western Australia. These states are
annual employment growth rate rising Consumption Expenditure (GCE)
now generating strong growth in
above 4%. jumped over 5% in 2015/16 and
mining production and exports as a
2016/17. Strong rises in education
direct consequence of the previous Private engineering construction, and health-related employment is
resources investment boom, boosting which is dominated by resources- contributing to the rise in GCE and the
Gross State Product (GSP). However, related construction, peaked at $39 healthier total employment figures.
growth in State Final Demand (SFD), billion in 2013/14 and then plunged
the sum of household consumption, 68% over the next two years. There Higher levels of private dwelling
government consumption and were also large declines in equipment investment helped offset declines in
investment – (both public and private) purchases and exploration by the private engineering construction. The
has been very weak or negative in Queensland mining industry over the recent upswing in residential building
recent years. This is important, as 2013/14 to 2015/16 period. Although followed a six-year decline (2007/08
growth in SFD tends to be a greater mining and heavy industry construction to 2012/13), which occured at the
driver of growth in employment and decreased a further 10% in 2016/17, same time that the mining boom
incomes than growth in (capital- the smaller decline off a much smaller was stimulating robust population
intensive) mining exports. base of investment has delivered a growth from both interstate and
smaller negative contribution to SFD. overseas, resulting in an undersupply
Meanwhile, the jump in coal prices of housing. This undersupply has now
and higher base metals prices over been eliminated, with private dwelling
There are vast 2016/17 has seen coal mines in investment growing at an average of
differences in Queensland re-opened and increases 12% per annum over the three years
in mining equipment purchases. to 2015/16 and peaking in 2016/17.
economic performance
by state
18 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookFigure 9
Total Construction Work Done by State (2015/16 Constant prices)
70,000 Forecast
60,000
50,000
Queensland economy
40,000
to pick from here,
30,000
but growth likely to
be constrained
20,000
10,000 The Queensland economy is showing
signs of recovery. The lower, post-
0
boom Australian dollar has helped
1990 1994 1998 2002 2006 2010 2014 2018 2022
Year Ended June boost tradeables such as tourism
and educational exports, with
NSW VIC QLD WA NT ACT TAS SA
manufacturing also likely to benefit
Source: BIS Oxford Economics, BREE data over the forecast horizon. Meanwhile,
Figure 10 public investment has returned after a
number of years of weakness.
Comparisons of State (SFD) and National (GNE) Growth in Final Demand
Public investment had been a drag
Forecast
20%
on the Queensland economy for
several years, having fallen by over
15%
a third over the six years to 2015/16
from the 2009/10 peak. Public non-
10% dwelling building had fallen to its
lowest level since 1993/94 (in real
5%
terms). However, it is now bouncing
back, led by education-related and
other social and institutional buildings.
0%
Public engineering construction also
picked up strongly over 2016/17 and
-5% further strong growth is predicted
for 2017/18 and 2018/19, driven
-10% by roads, harbours, defence, water
1987 1993 1999 2005 2011 2017 and telecommunications-related
Year Ended June
infrastructure. Further modest rises
AUS GNE WA SFD QLD SFD SA SFD
are expected thereafter, with falling
10% Forecast telecommunication construction
– as the NBN roll-out winds down –
8%
moderating the overall increases.
6%
4%
2%
0%
-2%
-4%
-6%
1987 1993 1999 2005 2011 2017
Year Ended June
AUS GNE NSW SFD VIC SFD
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 19Figure 11
Queensland Economy – Components of State Final Demand
400,000 Forecast
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Year Ended June
Public Investment Private Investment Private Consumption Expenditure Government Consumption Expenditure
Source: BIS Oxford Economics, BREE data
A sizeable chunk of the funding for A key challenge facing the Queensland Office building work has declined
this pick-up in activity is coming economy is the expected decline in sharply in recent years, with only weak
from Commonwealth infrastructure residential building, following strong growth in prospect, largely due to
allocations. Without increased income, growth over the past four years. With oversupply related to the decline in
State Government finances are the level of dwelling building now mining investment-related business
unable to support major increases in well above demand, an oversupply services which were a key component
infrastructure spending. Public sector is manifesting, particularly in the of office demand. Retail building is
debt has continued to escalate and apartment heavy inner Brisbane also expected to be relatively flat
the Queensland Government has lost market. Private dwelling investment over the next few years in line with
its AAA credit rating. The fall in coal slowed to 2.8% in 2016/17 and is consumer spending, but strong
and minerals prices over the three expected to contract over the three growth is anticipated in hotel and
years to 2015/16 also weakened years to 2019/20 inclusive. accommodation construction.
royalty revenues. On the other hand,
State Government revenues have
benefitted from the residential property … with non-residential A competitive Australian
recovery and corresponding increases building investment a dollar will continue to
in stamp duties. Generally higher coal mixed bag support service exports
prices (since the trough in early 2016)
and rising LNG production should Private non-residential building The ‘X factor’ for the Queensland
help boost government revenues and declined over 2016/17, after six years economy remains the value of the
underwrite healthier increases in public of solid growth, but further growth is Australian dollar and the improved
investment as well as modest rises expected over the next three years. attractiveness of Queensland’s key
in GCE. Over the next year, higher activity service exports.
in the hotels segment (boosted by
the lower dollar), warehouses and
Falling residential building private schools building should more
activity will dampen than offset declines in other sectors,
overall growth… particularly in the health sector as work
winds down on the (mainly privately
funded) $1.2 billion first stage of the
Sunshine Coast University Hospital.
20 2018 Queensland Major Projects Pipeline | Queensland Major Project OutlookTownsville Ring Road
The Queensland tourism industry While rising interest rates in the United After negligible growth through
has been buffeted for almost a States and a near term correction in 2016/17, employment growth has
decade – first by the GFC and then some key commodity prices (e.g. coal ramped up significantly through
by the high Australian dollar which and iron ore) would suggest that the 2017/18 to date, with annual growth
made holidaying in Australia more Australian dollar may depreciate further over the year to February 2018 just
expensive relative to other destinations against the US dollar in coming years, shy of 4%. Strengthening public and
in the region (for both domestic and there is the risk that the Australian business investment and renewed
international visitors). However, after dollar will remain stubbornly around tourism growth have been key drivers.
a decade of constraint, non-mining the US$0.75 mark for some time, and However, overall employment growth
trade-exposed industries are beginning may even appreciate, particularly as will likely weaken over the next two
to recover. At the national level, tourism the Australian economy improves later years, keeping household spending
related service exports grew 15% this decade. Consequently, it will be growth muted, similar to the last four
over 2016/17. The low dollar has also important for Queensland businesses years. Previous employment growth
supported growth and employment in to take advantage of the competitive was spurred by much higher rates
Queensland’s education sector. These gains already rendered by the fall in of population growth. Queensland’s
sectors will need to refurbish and the dollar now – and not wait or rely on population growth has come back to
then expand to meet demand. Other further falls in the currency as part of a the pack and, at 1.6% annual growth,
dollar-exposed industries are benefiting longer-term growth strategy. is around the national average – after
from the improved competitiveness of decades of population growth well
a lower dollar, showing initial signs of above the national average.
recovery. That will broaden to growth Employment improving,
and, eventually, investment in the non- yet recent growth to
mining sectors. But it is expected moderate GSP boosted by stronger
to be a long process. SFD growth over the
medium term
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline 21Figure 12
Queensland Annual Population Increase by Source
120
Forecast
100
80
60
40
20
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Year Ended June
Interstate Migration Overseas Migration Natural Increase
Source: BIS Oxford Economics, BREE data
Figure 13
5 Year Compound Annual Growth by Industry Sector, Queensland
Construction
Agriculture
Rental, Hiring & RealEstate
Electricity, Gas, Water & Waste Services
Ownership of Dwellings
Manufacturing
Retail Trade
Wholesale Trade
Public Administration & Safety
Administation & Support
Other Services
All Inudstries Average
Education & Training
Transport, Postal & Warehousing
Property & Business Services
Arts & Recreational
Mining
Finance & Insurance
Accommodation & Food Services
Professional, Scientific & Technical
Information, Media & Telecommunications
Health
-4 -2 0 2 4 6 8
2012-17 2018-22
Source: BIS Oxford Economics, BREE data
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